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Proto Labs Inc.'s Growth Continued in Q3

Overall, the quick-turn manufacturer did a great job executing on its long-term strategy of serving more customers and driving positive results.

On Thursday morning, Proto Labs (NYSE:PRLB) released its third-quarter earnings, which highlighted record revenue for the 13th consecutive quarter. Near the opening of trading, shares were over 7% higher.

The big picture:

Third-quarter revenue increased 24% year over year to $67.8 million, and would've increased by 28% had currencies remained constant.

Unique product developers served increased by 24% to a record 12,541 during the quarter.

GAAP net income increased by over 19% to a record $12.4 million, translating to earning 0.47 per share, an increase of 17.5%.

Overall, Proto Labs did a great job executing on its long-term strategy of serving more customers and driving positive results.

Source: Proto Labs

What happened during the quarter?Across the board, Proto Labs' results were quite encouraging:

3D printing revenue increased by 79% year over year to $6 million, suggesting continued strength from its Fineline acquisition, and that the company is effectively cross-selling 3D printing services to its existing customer base.

Although gross margins fell by 120 basis points year over year to 59.4%, concerns over declining margins may have eased slightly, as the company reported they increased 70 basis points sequentially.

North American revenue increased 26%, driven by strong growth in 3D printing and CNC machining services.

What management had to sayCEO Vicki Holt told investors that Proto Labs "continued to demonstrate strong momentum in the third quarter, reflecting solid execution of our marketing and sales, manufacturing, and new product and service initiatives." During the quarter, Proto Labs' sales and marketing expenses increased by over 36% to a hair over $10 million compared to last year.

Proto Labs also made progress on rolling out recently introduced services, which expand the company's addressable market. Holt highlighted that "demand for our stereolithography [3D printing] service in Europe, launched in the second quarter, has been growing steadily. We are seeing excellent reception for our lathe [milling] process, which is now operational in all of our regions."

Shortly after the end of the third quarter, Proto Labs completed its acquisition of Alphaform, a Germany-based rapid manufacturing and 3D printing service bureau. Holt had much to say about this recent acquisition.

We are very excited about the opportunities this transaction offers Proto Labs. Alphaform is known for its quality additive manufacturing [3D printing] and injection molding services, and we expect this acquisition will significantly accelerate our growth in Europe. We believe we can leverage Alphaform's manufacturing assets, customer base and experienced workforce quickly and cost effectively into our existing European operations, positioning us well for future expansion.

Looking aheadWhen Holt became CEO in early 2014, she laid out the company's three-pronged growth strategy:

Serve more customers

Develop technologies to bring new manufacturing services online

Broaden the capabilities of existing manufacturing services with more materials and complexity

In other words, Proto Labs' long-term goal is to expand the breadth of manufacturing and 3D printing services it offers worldwide, which in turn, allows it serve more customers. Considering the company served a record number of customers in the third quarter, Proto Labs continued making progress toward its long-term strategy, while the underlying business performed well.

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